The euro rose as high as $1.4422, though traders said it may struggle ahead of a large options barrier at $1.4430, which was expected to be heavily defended.
The dollar fell to its lowest since December 2009 versus a basket of currencies as the White House and Congress worked frantically to break a US budget deadlock by the end of the day and avoid a government shutdown.
Investors were also lured by the prospect of higher yield, helping the Australian dollar to a fresh 29-year high versus the greenback while the low-yielding Japanese yen suffered, hitting an 11-month low versus the euro.
"We're seeing broad-based dollar selling, especially against currencies with a favourable yield," said Carl Hammer, currency strategist at SEB in Stockholm.
"With all the focus recently on debt problems in the euro zone periphery, what is going on in the US highlights that the US has budget problems of its own, while the euro continues to be driven by the prospect of more rate hikes".
The ECB raised its key interest rate by 25 basis points to 1.25 percent on Thursday and the central bank's president Jean-Claude Trichet signalled it was ready to tighten further if needed.
On balance, the comments were interpreted as making aggressive rate hikes look less likely, but the euro dipped only briefly afterwards and analysts said the prospect of another rate rise this summer would continue to support the single currency.
The euro was up 0.75 percent to $1.4411. The euro's rise has extended following its breach this week of resistance near $1.4283, its November high and roughly where it faced trendline resistance drawn from its July 2008 record high.
Beyond $1.4430, the euro will target the $1.4500 psychological level and then the January 2010 high around $1.4580.
YEN FALLS
Market players said the yen looked set to weaken further on the back of interest rate differentials, and concerns about the economic impact from a massive earthquake and tsunami that struck Japan's northeast on March 11.
The euro rose more than 1 percent to an 11-month high of 122.90 yen, according to Reuters data.
This took it well above the top of the weekly Ichimoku cloud, a form of Japanese technical analysis widely used by market players, at around 122 yen. A weekly close above there would be seen as a buy signal.
"The dollar and yen are coming under pressure as investors are more comfortable with risk," said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong.
"There are good signs about the strength of the global recovery despite events in Japan, and for the moment that is boosting confidence and boosting risk assets".
The dollar index fell as low as 75.109, while the high-yielding Australian dollar jumped to a 29-year high of $1.0539.
The dollar rose against the yen, however, trading up 0.3 percent at 85.21 yen, nearing a six-month high of 85.530 yen hit earlier this week.